Market Liquidity in a Natural Experiment: Evidence from CDS Standard Coupons

Wang, Xinjie1; Wu, Ge2; Zhong, Zhaodong (Ken)3

2024-03-01

10.1017/S0022109024000176

JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS   影响因子和分区

0022-1090

1756-6916

The credit default swap (CDS) Big Bang introduced 2 standard coupons for CDS trading. We exploit the setting of the 2 standard coupons as a natural experiment to quantify the components of the bid-ask spreads in over-the-counter markets. We find that a significant portion of the difference in the bid-ask spread between the 2 coupons is explained by the difference in funding costs. Furthermore, search intensity also explains the variation in the difference in bid-ask spread. The liquidity typically concentrates on one of the standard coupons and can suddenly switch to the other coupon. Using the sudden switch of the primary coupon, we provide further evidence to support the predictions of search-based liquidity models.

SSCI

英语

第一 ; 通讯

Business & Economics

Business, Finance ; Economics

WOS:001226546300001

CAMBRIDGE UNIV PRESS

ECONOMICS BUSINESS

Web of Science

1.Southern Univ Sci & Technol, Business Sch, Dept Finance, Shenzhen, Peoples R China
2.Univ Richmond, Robins Sch Business, Richmond, VA USA
3.Rutgers State Univ, Rutgers Business Sch, Dept Finance & Econ, Newark, NJ USA

Wang, Xinjie,Wu, Ge,Zhong, Zhaodong . Market Liquidity in a Natural Experiment: Evidence from CDS Standard Coupons[J]. JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS,2024.

Wang, Xinjie,Wu, Ge,&Zhong, Zhaodong .(2024).Market Liquidity in a Natural Experiment: Evidence from CDS Standard Coupons.JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS.

Wang, Xinjie,et al."Market Liquidity in a Natural Experiment: Evidence from CDS Standard Coupons".JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS (2024).